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The role Microsoft and Intel played

Let me be entirely clear here: Intel and Microsoft are partly to blame for the wretched state of the OEM market. In Intel’s case, the company allegedly used a rebate system that prevented the major OEMs from using more than a small number of AMD processors across various product lines (the percentages shifted by product division and market segment). When Intel created its Centrino, netbook, and ultrabook brands, it tied the receipt of marketing funds to agreements to use specific parts or conform to particular specifications. Centrino laptops, for example, were required to use Intel wireless solutions.

Microsoft, meanwhile, betrayed its promise to HP regarding what laptop chipsets would and wouldn’t qualify as “Vista Capable.” In August 2005, Microsoft promised Hewlett Packard that Intel’s 915 chipset wouldn’t qualify as Vista Capable. According to internal Microsoft email that came to light as a result of the associated lawsuit, HP “made significant product roadmap changes to support graphics for the full Vista experience. Ramano specifically told Jim [Allchin] that HP will invest in graphics if MS would give him 100% assurance that we would not budge for Intel. This goes beyond desktop for HP as their mobile guys moved off 915 early for the same reasons.”

Microsoft broke that promise. Why? In the words of John Kalkman, a general manager at Microsoft, “In the end, we lowered the requirement to help Intel make their quarterly earnings so they could continue to sell motherboards with 915 graphics embedded.” Anyone want to take bets on the lesson HP learned from that little debacle?

So what’s this have to do with ultrabooks?

A lot more than you might think. Look at a number of reviews on new laptops and ultrabooks running Windows 8, and a lot of the systems, including the high-end ones, are loaded with the same crap that pollutes the low end models. Laptop manufacturers are aware of how much consumers hate their software choices — if the real point of “value-added” software is that it artificially subsidizes low-end PCs, why isn’t the software confined to just these models?

The problems run deeper than software. Trackpads on a number of ultrabooks simply aren’t as good as the ones Apple uses. That includes ultrabooks with the sort of $1000+ price tags that compete squarely in the MBA/MBP’s turf. Why not? Because PC manufacturers chose not to use better ones. Microsoft went off to build Surface because it didn’t believe it could trust OEMs to build innovative Windows 8 hardware. Evidence suggests it was right.

Maybe the TouchPad, Adamo, and Voodoo Envy were the wrong products, but they were the wrong products with the right idea. The only way to change longstanding consumer perceptions is to design products that challenge the status quo — and then keep doing it. It takes guts not to cancel a product after the first generation doesn’t ship in the kind of volume you were hoping for. It’s hard to argue for getting rid of crapware on a high-end system when your overall product margins are in the 5% range.

But that’s what it’s going to take. Apple doesn’t own the $1000+ market just because of some unibody-clad magic. It owns that space because consumers believe, rightly or wrongly, that Apple products deserve that kind of investment while hardware from the likes of Dell, HP, Lenovo, and Asus don’t. That can change. There’s a $1000 price gap between Apple and the rest of the industry and $1000 per system pays for a lot of potential innovation. The top OEMs have their own economies of scale to leverage.

It’s going to cost. It’s going to mean a lot of missteps and skunkworks initiatives. Some of those initiatives are going to fail. That has to be ok. Product developers have to have the freedom to design a product that puts the consumer first in every way, from the keyboard and trackpad to the chassis material and pre-installed software. No cutting corners. No compromises. It means judging hardware designs based on their long-term potential rather than short-term sales performance.

The tablet / notebook market is evolving at a tremendous pace. New materials, capabilities, and functions are being integrated in software and hardware, from flexible displays to new CPU architectures to new types of device control. The current OEMs have a real opportunity to get in front of this process and own some of the innovation that’s happening, but hiding behind rock-bottom margins will never make that happen. Intel and Microsoft are trying to push PC margins back up — the last thing that would help the market, long term, is another round of price cuts.

Disclosure: The author owns a single Apple phone and is none too happy with it.

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What you’ve missed is the way PC OEMs are trying to reposition while relative upstarts like Apple and Samsung eat their lunch as the go-to companies for new technology.

HP seriously considered selling off its PC business. Dell is considering going private. Those aren’t the actions of healthy competitors, and these are the largest (and theoretically most streamlined) manufacturers in the world.

For 20 years, OEMs pushed prices down and cut costs by moving to China and aggressively optimizing their supply chains. Net profits as a percentage of revenue, however, are down to 4-5%.

That’s not sustainable. The point of ultrabooks is to push back against that trend.

some_guy_said

I would argue that wall street style businesses (Moar SALES, MOAR PROFIT, EVERY QUARTER INTO INFINITY. EXPAND EXPAND EXPAND!) Will wither away in the new PC market, because it is contracting no matter what happens.

Your ‘advice’ here will not change the overall trajectory, though it is good advice for any company that is willing to rightsize or diversify and still sell PCs to the consumer market.

This scenario is nearly identical to the Carmaker crisis we had at the beginning of the recession – except in this case, we would not expect the market to recover.

Some big PC companies will fail. Good riddance to terrible business practices.

Jml

Wall street style business is killing the PC market. AMD is even more proof of this their history unless they somehow get into game which won’t happen any time soon. The market is too small for lots of PC makers to people like dell and HP DIE DIE DIE RIGHT NOW AHAHAHAH!!!

some_guy_said

AMD’s situation has more to do with intel than wall street.

Jml

No it has to do with both Intel and Wall street. Rory Read all he wants to do is please the Board of Directors that hired him and the shareholders. That kind of thinking will kill AMD. Can’t say I’ll miss their inferior products and missed deadlines all that much. AMD hasn’t put out a good product since the Athlon days. Llano sucked and used too much power and Trinity was more of the same. Brazos sucked and used as much power as Intel’s ULV line.

some_guy_said

AMD has always been the underdog – always had far fewer resources for R&D, has always had to pay licensing to its competitor for every x86 core, has had to battle long and hard in court just to make x86 chips on their license, and had to do business in an environment where Intel used its pole position to enact some severely anticompetitive practices that shut AMD completely out of most of the largest PC manufacturers until a few years ago.

I kind of agree with you that AMD hasn’t kept up well since the Athlon/early phenom days, but it’s a miracle that the company is still in business at all – And regardless of its current situation and management, Intel started pushing AMD down its current current trajectory before the AMD’s management mess.

Jml

AMD won’t be in business for long OH YEAH!!!!!! AMD has already dug their own grave Intel may of helped but AMD releasing POS after POS after POS after POS really dug AMD into extinction!!!! If AMD actually had decent management and outstanding products WHICH THEY NEITHER OF THOSE!!!! So i can’t wait for AMD, M$ and Sony TO DIIIIIIIIIIIIIEEEEEEE!!!!!

http://www.facebook.com/edgaras.gr Edgaras Gr

you forgot that amd have ATI so they not only making CPU but GPU to

Alex

Well perhaps they’ve been optimizing the wrong things. Perhaps they should optimize wintel out for a change.

Joel Hruska

That’s not exactly working well for anyone in Windows RT land. :)

Martin Rousev

Exactly my point! I spend most of half my awake time on a computer. Do OEMs think they’ve done me a favor by saving $20 on a cheaper trackpad?

Jml

No it won’t help but they are all about the $$$$$ so it doesn’t matter to them.

wp77

The OEM’s do need to step up the quality game, but there is a market reality – I don’t shop at Walmart but cannot deny it serves the largest retail demographic. Simply put, most people prefer to buy things for less money. Few see the value in a $1,500 laptop or mercedes/bmw for that matter

http://www.facebook.com/WhoAreYouWhatAreYouDoingHere Chris Shakal

Expensive, high-quality workstation computers will definitely be needed for engineering. That market will probably never go away.

Jml

That is true however for most people small computers are the future. ARM is delivering that future right NOW.

Alex

You are correct, all of them probably comprising less 1% of the current market. I can see half of that market taken over by the server room, so that engineers could use a tablet or lightweight laptop to run processor-intensive tasks on the mainframe.

Fact is, we are witnessing a fundamental shift in the way people use computers. Single-threaded productivity having plateau’d, there is no reason for the average person to buy new stuff from Intel, and this is not helped by current offers being un-inspiring rehashes of same-old, for over a decade. There are new devices better suited to the average person’ tasks, and they are priced much lower to boot. Mainstream PCs are getting squeezed from below by tablets and have nowhere to go but up, but alas, the high-end market is captured by Apple.

It looks like a **burning platform**, but don’t worry… Elop-man is coming to the rescue! He’ll get the OEMs to the safe Windows platform… erm.. wait…. Anyways, it was fun (not!) while it lasted. I for sure won’t miss the “lost” decade, it was a dull treadmill with nothing exciting. What’s happening now is a few companies have to innovate or die – and that’s good. It will be an exciting few years.

w_km

The only problem is that there are too many PC manufacturers, with not enough money to take a big hit on a high-end failure, which is imminent because the demand in the high-end PC market can’t support all PC manufacturers.

sesummers

I think the bottom line is that Windows based PCs are too complicated to justify for most of the purposes that most people are using computers for. The fact that so many people (even information workers who actually need PCs for some of their work) report leaving their laptops at home and taking just their iPad or Nexus tablet on trips with them means that most computer use-cases are better served with a phone or tablet than a complex PC.

However, that doesn’t mean that the use-cases that ARE best served by full PCs (programming, technical writing, web design – any form of content creation- as well as knowledge workers (accounting, help desk staff, etc) who need information from multiple windows at once, don’t still need full PCs – ideally PCs with multiple monitors (or really large ones) and really fast performance.

I think we’re going to see the PC’s share of the overall “device with computer functionality” market decline, eventually to maybe 20% of devices – and in that, I include both desktop and laptop PCs. At that point, the people who actually need them will be willing to spend more (or have more spent on their behalf :)) because the thing they’re investing in is a power-tool for their job, not something competing for their “gadget budget” next to the latest iPad or Android tablet.

But the days where Dell can increase their quarterly performance by shaving another 10% off the price tag of their various lines of “custom tailored” home and small business systems, so they cost only $360 instead of $400 and they sell 11% more of them to make up for the 10% price reduction, are probably already over.

Dell, HP, Lenovo, and the others are going to have to reconcile themselves to a HUGE reduction (factor of 3-4?) in unit shipments of these kinds of systems over the next half-decade. Some of them should realize that they won’t survive this transition, and do something else instead.

easy e

In other words years of feeding the masses crappy hardware and software have caught up with these clowns. MS, the worst offender, created pretty but unreliable junk, and now they find that the customers wised up. Boo hoo. Another day of the Invisible Hand rudely awakening those too lazy or unwise to acknowledge reality.

http://www.facebook.com/suhaesen67 Süha Esen

yes PC has always been crippled by design, came by crapware, etc. etc. But what happened? answer is simple; people just discovered Apple…. my generation was thinking it was expensive and incompatible, newer gens. just don’t have an idea about what Apple was… But they are a software company that build their own computers, they were already doing that quite well for many years… we just discovered it again….

http://www.facebook.com/WhoAreYouWhatAreYouDoingHere Chris Shakal

My generation (college-age) thinks Apple is the cooler, younger, better brother of Windows computers. Apple laptops are well-built, reliable, and just plain look better. They induce envy among others. Even at my engineering school, over half of the student body owns a MacBook, even though a lot of the main engineering programs aren’t compatible without running Bootcamp, etc. I own a Win7 laptop myself (Acer), and I’m very pleased with it. Cheap but very very capable.

user 9693

“Apple products deserve that kind of investment while hardware from the likes of Dell, HP, Lenovo, and Asus don’t”

apple don’t have the manufacturing plants in a way they both import from the manufacturers and brand it by their name, almost same hardware in pc as well as in mac.

I have to pay twice/thrice money for the same hardware in then why should I do that and apple made it that way that they are highly non repairable then you have to upgrade it for nothing.

I do appreciate os x it’s a nice os but people like you own a mac to show off “hey look I’m trendy I’ve a white shiny mac” and about the crapwares pre-installed in windows by OEM’s one can easily do a clean install.

“PC industry’s last chance”
really! on what grounds are you saying this?
then who’s rising macs (that overpriced nonsense ) or Linux(I don’t think so)
compare the market share or the no of products selling

this article is utter and complete garbage
when you’re writing an article don’t talk about your fantasy talk about relevancy and logical things

Joel Hruska

but people like you own a mac

Please see the disclosure at the bottom of page 2. I owned a MacBook from 2008-2009. Company laptop.

It was a nice system. I learned how to use OS X on it.

Every system I have ever built or purchased has been a PC.

OceanGrownKush

Trust me when I tell you that you have no idea what you’re talking about…not even a little bit. Idiot teenage kids. (rolls eyes)

user 9693

I don’t have much idea but certainly more than you
Trust me when I tell you that you have no idea what you’re talking about…not even a little bit. Idiot teenage kids. (rolls eyes)

OceanGrownKush

No you don’t, as evidenced by your ridiculous statement.

user 9693

No you don’t, as evidenced by your ridiculous, ignorant and dumb statement.

user 9693

apple’s ” amazing quality softwares” ,wow I didn’t know that.

All the software you need is built into every Mac.
Mail
Calendar
Contacts
Safari web browser
Messages and FaceTime
Preview PDF and image viewer
iTunes
iPhoto
iMovie
GarageBand

Jml

You pay for the quality that apple delivers. However everyone else including the super greedy M$ has apple envy and prices their PC’s as high as apples but they don’t sell I wonder WHY. Computers are WAY TOO Expensive and Ultrabooks are NOT HELPING anyone but Intel’s margins. Ultrabook’s where created to put more money in Intel’s pockets and the NUC was created for that propose as well.

user 9693

Oh really I didn’t know about the “quality” apple delivers.

http://geek.com/ sal cangeloso

You should go to an Apple store and give them a shot!

user 9693

why?
and no considering all the things I know about apple and their products.

eliking

Don’t forget 1366×768, which is synonymous with POS.

If there is one way to advertise that you have a bottom feeder product is to stick a 1366×768 display on it. At that point, no other spec matters.

A computer with a POS screen is like a butter-face girl. No matter how banging good her body is, the face is what you see most, and if that’s ugly, she’s an ugly girl.

Max

You are wrong with this article. Its obvious that better quality products at cheaper prices are the answer. Its the only way Google has taken so much away from Apple and Microsoft. If these companies don’t find a way to compete with Google, they will all eventually be driven out like Nokia and RIMM. Nokia barely got some back because they actually put out an almost quality product if Windows 8 would have been designed a little better and made themselves more affordable for Manufacturers. They are shooting themselves in the foot. And the more they let this go on the harder it will be to pull themselves out this pit. Android is literally poised to dominate the globe. And Microsoft and Apple seem complicit in making it happen. Apple stopped innovating and keeps gouging their clients, and Microsoft just seems out of touch with the truth. They’re software is no longer a staple of everyone’s diet. People can live on Android alone. They are in big trouble if they don’t let their software become more accessible. And it will be too late, if the next round of Phablets, Phones, & Tablets have amazing specs and are even cheaper.

OceanGrownKush

What a laughable comment.

Max

I am quite certain that when RIMM and Nokia were told the same thing, they were probably of the same dismissive position you are taking.

some_guy_said

You know, I agree with you on every gripe you have, but you’re absolutely wrong.

The only way the PC market will stop sliding is if mobile devices and tablets take a dive off a cliff. Not happening.

Apple owns the $1000+ market because their fan base sees artificial value where there is one. A PC owner knows that there is little extra value over that mark – with hugely diminishing returns after $1300 or so (with some exceptions based on different needs)

Higher quality devices will be nice, but devices that don’t break, or can keep up better through the years will only serve to hasten the PC market contraction, not expand it.

Macs are good quality computers, and most apple fans brag about their 5 year old computer. They don’t run out and buy more newer computers because of it.

Jml

Most PC’s don’t last 5+ years but old pc’s do and so do macs. The PC is dying so what nothing anyone can do about it. I like the fact that the current tower type PC is dying out and AMD isn’t getting with the program and there going die out too YES YES YES!!!!

some_guy_said

Most decent PC hardware does last over 5 years. My last three PCs have all lasted at least that long (Then I sell, give away, or upgrade.)

Hardware, especially HDDs have gotten far more reliably in the last 10 years. It’s actually easier and cheaper to build a reliable computer.

The many quality issues with the computers are not necessarily hardware failure related. Even cheap desktops can be expected to last – While Battery and Power components are the primary Hardware failure for laptops.

Crappy computer experiences that lead to replacement are often based on software issues that the average person doesn’t know how to fix.

http://www.facebook.com/profile.php?id=100003543855473 Robert Miller

I bought an iphone 3g in 2009 and Apple replaced it 4 times since then the most recent was march of last year. It still works well…for now

Is the kind of quality you’re referring to?

I worked in a repair shop for both PC and Mac and it was pretty much same amount of repairs for each.Mac repairs were generally more expensive.

How about instead of higher prices and better quality, we have LOWER PRICES AND HIGHER QUALITY?

JDRahman

The problem is the large, corporate and public sector customers. They issues tenders with simple specs and then choose the vendor that meets the specs for the lowest cost. How do you sell them “value” products?
They are not interested in looks or components that improve usability or security.

http://geek.com/ sal cangeloso

This is an excellent point. The companies can (and do) distinguish between consumer and SMB and enterprise systems, but not everyone wants higher end machines.

Marc Guillot

I agree, PC manufacturers should focus on quality high-priced devices, if Apple can do a living with this plan so can them.

Leave the low end market to ARM, so we can all have even cheaper laptops (you can probably cut $200 more avoiding Microsoft licenses and overpriced and less integrated Intel processors and mobos). This ARM laptops will be more than enough for most of the users (specially with last generation processors like the Exynos 5), the rest can justify to buy high-priced Windows & Apple laptops.

We only need better OS’s and software for ARM, and Ubuntu is almost there.

Alex

Exactly. Ditch Wintel and see margins come back. Then perhaps people will buy the adequately-priced stuff.

There is no room for two Apple companies in IT. Everyone who wanted an expensive laptop already got one, from Apple. As a bonus they got a nice productivity suite geared towards the general user. Windows? Meh…

I find it funny when a 15″ ultrabook comes with a price tag of $1200 and sports a 1366×768 monitor, that is an instant turn off. WTF are those guys smoking? Still clinging to wintel I see, well you’ll go the way of the buggy whip makers if you keep peddling their overpriced junk.

‘Tis Moi

I agree that trying to offer super-cheap PC’s loaded with crapware isn’t doing anyone any favours. People are already b*tching about 8 as it is. It’s driving down what little consumer confidence there was left for MS & the OEM’s. Regular folk have no idea what Intel actually does (or AMD, for that matter) but they do know Windows sucks right now & they know whose name is on their PC.

My little business (just me, out of my home office) charges $75 to remove the junk & to make the 8 system run like 7. I’m getting lots of calls…Do you think this was a MS plan? Like, intro 8 to buy time to work out something decent for “9”- including (surprise) bringing back the start button as a way to encourage people to purchase an upgrade package??

Good article.

Jml

The Start button isn’t coming back as much as I would like that. M$ is set on Metro!!!

http://twitter.com/neilrieck Neil Rieck

When mini-computers supplanted main-frames, the main-frame business never really came back. Since those days, PC towers and PC desktops put pressure on the mini-computer business but never killed it. Now we all know that lots of non-computer people bought laptops just so they could read email or use a browser to purchase a book or movie. But many of these people are now ditching their laptops for pads and tablets. Meanwhile, many computer people with employer-provided laptops converted their machines back into pseudo-desktops by adding full keyboards, external mice, and large displays. The advent of cameras for virtual meetings meant that many of these systems never traveled away from their desks. So as far as I can tell, the laptop business will decline (due to pads and tablets) while the tower/desktop business will grow slightly with the world-wide increase of computer professionals.

Two final points:
1) since the supply is greater than the demand, prices will continue to drop.
2) the mini-business “may” eventually feel pressure from the cloud computing

Just my two cents worth :-)

http://geek.com/ sal cangeloso

Great points Neil.

I would say I don’t know how much more prices will drop, as Joel pointed out, ASPs are quite low and margins are razor thin. I think the next BIG move in terms of price drops will be sending off things to the cloud and keeping local computing super cheap for the people that don’t need it.

luis3007

The low end market is already lost to cheap Android phones and tablets, The OEMs should concentrate in the mid and high range market for devices and leave the low end alone. This way quality and lack of crapware can be fullfilled with higher prices for better devices

Lewis

You know theirs a old saying, “if you build it they will come.” But they forgot it’s has to be something that we like not window 8.

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